The 2022/23 Provisional Local Government Finance Settlement

January 2022

1. The Local Government Association (LGA) is here to support, promote and improve local government. We will fight local government's corner and support councils through challenging times by making the case for greater devolution, helping councils tackle their challenges and assisting them to deliver better value for money services.
2. This response has been agreed by the Chairman and Lead Members of Resources Board.

1. Prior to the Spending Review, the LGA estimated that councils faced cost pressures of £2.6 billion in each year up to 2024/25, to keep services at their 2019/20 levels of access and quality – without addressing any pre-existing pressures.
   
    
2. In this context, the Spending Review and the settlement have provided a welcome potential increase of 6.9% in council core spending power in cash terms, including new government grants, to support vital local services. This potential increase will support councils to meet extra cost and demand-led pressures next year to keep providing services at pre-pandemic levels. However, this assumes every local authority will raise their council tax by the maximum permitted without a referendum.
   
    
3. As a one year settlement it does not address the challenges in future years. In addition, steadily growing demand has seen some councils with responsibility for children’s and adult’s social care devoting nearly two-thirds of their total spending to these services. The additional funding will not go far enough in addressing the very real existing pressures these vital services face.
   
    
4. The core spending power figures, which are Government forecasts, are based on the assumption that every local authority will raise their council tax by the maximum permitted without a referendum. This leaves councils facing the tough choice about whether to increase council tax bills to bring in desperately-needed funding at a time when they are acutely aware of the significant burden that could place on some households.
   
    
5. Council tax rises – particularly the adult social care precept – have never been the solution to the long-term pressures faced by councils, particularly in social care.  Increasing council tax raises different amounts of money in different parts of the country, unrelated to need.
   
    
6. The New Homes Bonus makes up a considerable part of funding for some councils, particularly shire district authorities. Councils need clarity on the future of the New Homes Bonus to be able to plan their budgets beyond next year and into the medium term. Any changes should come with transitional funding to ensure that local authority services that residents rely on are not put at risk.
   
    
7. With the spread of Omicron, COVID-19 pressures are intensifying and costs are rising, underlining the urgency for government to extend outbreak funding for councils beyond March, to tackle rising cases and meet a surge in demand for local contact tracing. Additionally, vital income streams have been further reduced, compounded by the end of the income compensation scheme. We continue to call on the government to meet the full costs and lost income councils experience as a result of the pandemic.
   
    
8. The public health grant also needs to be published as soon as possible, so councils know how much they can budget for essential services to help keep people healthy throughout their lives, including for treating drug misuse and tackling obesity.
   
    
9. The Government should now provide clarity on which local government funding reforms will happen and when. It needs to push ahead with the Fair Funding Review, including looking both at the data and the formulas used to distribute funding. We look forward to resuming work on the Review to ensure overall local government funding is sufficient when any funding distribution changes are introduced so that no council sees its funding reduce as a result. We also look forward to clarity on business rates retention and the reset.
   
    
10. While funding reforms make it difficult for a government to set out a multi-year settlement for local government, this is the fourth one-year settlement in a row for councils which continues to hamper financial planning and their financial sustainability. Only with adequate long-term resources, certainty and freedoms, can councils deliver world-class local services for our communities, tackle the climate emergency, and level up all parts of the country.

Question 1: Do you agree with the government’s proposed methodology for the distribution of Revenue Support Grant in 2022/23, including the rolling in of two New Burdens grants?

1. We note that the methodology for allocating Revenue Support Grant (RSG) in 2022/23 is unchanged from previous years. The LGA does not take a formal view on distribution, pointing to arguments on both sides.
   
    
2. We further note that in freezing Baseline Funding Levels (BFLs) at their 2020/21 level, the Government has again decided not to proceed with the negative adjustment to top-ups and tariffs known as ‘negative RSG’ in 2022/23. The affected authorities will welcome the Government proposal to again cancel the adjustment in the 2022/23 settlement.
   
    
3. We note the decision to roll in the Electoral Registration and the Financial Transparency of Local Authority Maintained Schools grants using 2013/14 settlement funding shares. Authorities with those responsibilities will want to ensure that the funding goes to the correct tier.
   
    
4. We welcome the commitment from the Government to uprate the business rates under-indexation compensation grant by the retail price index (RPI) in the final settlement.

Question 2: Do you agree with the proposed package of council tax referendum principles for 2022/23?

1. No national tax is subject to a referendum. The council tax referendum limit needs to be abolished so councils and their communities can decide how much council tax income should contribute to funding local services that are under pressure, with residents able to democratically hold their council to account through the ballot box.
   
    
2. Whilst it is good that there will be flexibility for councils to raise the adult social care precept by a further 1 per cent in 2021/22, this is not a sustainable solution to funding adult social care. There is also a very real risk that local residents will feel they are paying twice with an increased social care precept, on top of the new health and social care levy yet see their experience of social care services deteriorate due to dwindling resources and ever greater pressure on providers, the care workforce, and unpaid carers.
   
    
3. An increase in council tax of up to 3 per cent will also place a significant burden on households. In addition, increasing council tax raises different amounts of money in different parts of the country, unrelated to need.
   
    
4. Should ministers proceed with referendum principles for 2022/23, we agree that districts should have the extra flexibility but in view of the proposed £10 threshold proposed for Police and Crime Commissioners, we would call for a higher limit than £5. We would also call for all fire and rescue authorities to be given the £5 flexibility proposed for the eight with the lowest precept in 2021/22.

Question 3: Do you agree with the government’s proposals for the Social Care Grant in 2022/23?

Question 4: Do you agree with the government’s proposals for iBCF in 2022/23?

1. The additional funding for adult and children’s social care is welcome, as is that the funding will not be ringfenced, providing councils with flexibility on how their allocations are best used locally. The £700 million will help to tackle the most immediate budget pressures such as inflation on care services including the cost of increases to the national living wage. However, it will not be sufficient to invest in the preventative and early help services or improve the quality of care in all settings that councils and their partners are committed to. It will tackle neither unmet and under-met need nor workforce challenges, including the key issue of care worker pay for adult social care, across both sectors.
   
    
2. We recognise the fact that the Improved Better Care Fund will receive a £63 million inflationary uplift in 2022/23, having been frozen in 2021/22.
   
    
3. We note the proposals to allocate funding of the remaining £636 million through the social care grant, £556 million will be distributed on the basis of the 2013/14 adult social care relative needs formula, with £80 million used to adjust for the funding that could potentially be raised through the adult social care precept in 2022/23.
   
    
4. The LGA does not take a formal view on distribution, pointing to arguments on both sides. However, we note that RNFs are a recognised way of allocating grant resources although the data was last updated in 2013/14 and the formula was developed some years previous to that. Some authorities with high pressures relating to children’s services might have preferred the Social Care grant to be allocated at least partly according to the Children’s RNF. We note that the equalisation element will go some way towards compensating for the different amounts raised through the Adult Social Care precept.

Question 5: Do you agree with the government’s proposals for distributing the Market Sustainability and Fair Cost of Care Fund in 2022/23?

1. We recognise that this is part of the £3.6 billion of the social care reform funding to be allocated via Core Spending Power over the next three years.  We note that the government’s preferred methodology for distributing the £162 million Market Sustainability and Fair Cost of Care Fund is the existing adult social care relative needs formula. We do not take a position supporting a particular distribution formula. We note that RNFs are a recognised way of allocating grant resources although the data was last updated in 2013/14 and the formula was developed some years previous to that.
   
    
2. We are not convinced that the £3.6 billion funding over three years to implement fair cost of care reform, the care cost cap and extension of the means test threshold (part of the wider £5.4 billion allocated for social care through the new Health and Social Care Levy) is sufficient which means councils may be put in a difficult position with insufficient funding to fully implement new statutory responsibilities.
   
    
3. Our estimate of the provider market funding gap is £1.5 billion now, rising to £1.8 billion by 2024/25. Tackling this alone is more than the funding allocated for reform, leaving nothing for other practical implementation matters associated with the reforms, such as setting up necessary IT systems and conducting additional assessments, or the actual implementation costs of the cap and floor.

We therefore ask the government to offer assurances that the planned changes will be funded in full.

Question 6: Do you agree with the government’s proposals for a one-off 2022/23 Services Grant distributed using 2013/14 shares of the Settlement Funding Assessment?

1. We note that the one-off Services Grant worth £822 million in 2022/23 is proposed to be distributed through the existing formula for assessed relative need across the sector, using 2013/14 shares of Settlement Funding Assessment. We do not take a position supporting a particular distribution formula. We note that RNFs are a recognised way of allocating grant resources although the data was last updated in 2013/14 and a number of the underlying formulae were developed some years previous to that.
   
    
2. We also note that the grant will not be ring-fenced and that the Government intends this to be a one off grant for 2022/23 and to work closely with local government on how to best use this funding from 2023/24 onwards. We further note that the funding would be excluded from any proposed baseline for transitional support as a result of any potential future system changes.  There will be some concern in the sector that its one-off nature makes planning for 2023/24 and beyond more difficult.

Question 7: Do you agree with the government’s proposals for New Homes Bonus in 2022/23?

1. The New Homes Bonus (NHB) makes up a considerable part of funding for some councils, particularly shire district authorities. The LGA has always been of the view that the NHB should be funded from outside the settlement.
   
    
2. Councils need clarity on the future of the new homes bonus to be able to plan their budgets beyond next year and into the medium term. Any changes should come with transitional funding to ensure that local authority services that residents rely on are not put at risk.

Question 8: Do you agree with the government’s proposals for Rural Services Delivery Grant in 2022/23?

1. Councils which receive this grant will welcome this proposal, which is unchanged from 2021/22, although they might have hoped for an uplift to reflect inflation.

Question 9: Do you agree with the government’s proposal for the Lower Tier Services Grant, with a new minimum funding floor in 2022/23 so that no authority sees an annual reduction in Core Spending Power?

1. As stated above we do not take a formal view on distribution. Councils receiving this grant will welcome the funding.

Question 10: Do you have any comments on the impact of the proposals for the 2022/23 settlement outlined in this consultation document on persons who share a protected characteristic, and on the draft policy impact statement published alongside the consultation document? Please provide evidence to support your comments.

1. As mentioned in our response to question 1, the LGA does not take a formal view on distribution, pointing to arguments on both sides.
   
    
2. We would recommend that in addition to the draft policy impact statement, the Government should review whether their distribution methodology leads to disparities on the basis of protected characteristics (for example in terms of resource going to areas with higher Black, Asian and minority ethnic (BAME) communities, who have evidentially been harder hit by COVID-19).
   
    
3. We would also note that although socioeconomic status is not a protected characteristic, it has a proven relationship with differential outcomes for many protected characteristics (race, age, gender, disability). It should therefore be considered alongside them, particularly given the strong evidence of COVID-19-exacerbated health inequalities and economic impacts. This is in order to mitigate economic and financial inequality and ensure all communities are supported through economic recovery.
   
    
4. In addition, the LGA refers the Government to the response from individual member authorities.

Fair Funding Review and Business Rates retention

1. We note that the Government has stated its commitment to ensuring that funding allocations for councils are based on an up-to-date assessment of their needs and resources. The Government has also noted that the data has not been updated for a number of years and that it will work closely with the sector and other stakeholders to update this and to look at the challenges and opportunities facing the sector before consulting on any potential changes. This includes options to support local authorities through transitional protection – the one off 2022/23 Services Grant will be excluded from potential transitional protections.
   
    
2. We look forward to the Government committing to the Fair Funding Review, reviewing both the formulas and the underlying data used for the assessment of relative needs and resources.  As a first step, the Government needs to review progress it made prior to the pausing of this work to ensure that it is still fit for purpose, or flexible enough to deal with shifts in available data and council service models as a result of COVID-19.
   
    
3. We welcome the Government’s intention to engage with the sector, and consult, on potential future changes to the system.  This process should be as open and transparent as possible.  Transitional mechanisms attached to the outcome of the review should provide sufficient funding to ensure that no council experiences a loss of income. We also look forward to clarity on business rates retention and the reset.

Public Health

1. We note that the settlement includes no information about the national total, or individual council allocations, of the public health grant for 2022/23.
   
    
2. We call on government to provide councils with clarity on the funding for public health as soon as possible. The current delay to the announcement is making it extremely difficult for councils to plan effectively at a time when public health services are vital to the fight against COVID-19.
   
    
3. Public health teams have faced an unprecedented period of funding and demand pressures and continue to face significant pressures and challenges. Sufficient ongoing funding is needed to ensure all local authorities can continue to meet their public health responsibilities beyond COVID-19 as well.
   
    
4. The additional £533m in funding for locally commissioned drug and alcohol treatment services announced on 6 December is welcome news. We call on government to provide councils with funding allocations, and certainty beyond 2022/23 as soon as possible.

Funding for Fire and Rescue Services

1. As with councils, Fire and Rescue Authorities (FRAs) will be able to raise their precept by 2 per cent in 2022/23, with 8 fire and rescue authorities with the lowest council tax level able to increase Band D council tax by up to £5. Fire authorities will also receive an increase in their revenue support grant in line with inflation, an increase in the compensation grant for under-indexing the business rates multiplier and a share of the £822 million Services Delivery Grant.
   
    
2. Fire and rescue services need to be funded to take account of the full range of risks, demands and cost pressures they face. The sector also needs to be funded properly in order to engage in meaningful reform and transformation.
   
    
3. While we would prefer council tax referendum limits to be removed, we would call for all fire and rescue authorities to be given the £5 flexibility proposed for the eight with the lowest precept in 2021/22.
   
    
4. The outcomes of the cases about discriminatory provisions in the firefighters’ pension scheme following government amendment in 2015 will have implications for the employer contributions to be made by FRAs. In addition to those costs and paying compensation to firefighters, there are substantial costs relating to remedy implementation including software, wider operational administration and management costs, actuarial costs and legal costs incurred as a result of inclusion in the litigation. Unless these additional cost pressures are funded by government, they will continue to have a significant impact on FRA budgets in 2022/23 and beyond. 
   
    
5. We note that funding for building safety is not mentioned in the settlement, including funding for local authority building control and for fire services to increase capacity to deliver the functions of the Building Safety Regulator. This is a concern as sufficient funding will be required to enable local authorities to support the regulator in its work to deliver meaningful change to the built environment.

Clarity on funding and predictability

1. While funding reforms make it difficult for a government to set out a multi-year settlement for local government, this is the fourth one-year settlement in a row for councils which continues to hamper financial planning and their financial sustainability. Only with adequate long-term resources, certainty and freedoms, can councils deliver world-class local services for our communities, tackle the climate emergency, and level up all parts of the country. We will continue to promote the role all councils play in making a huge difference to the lives of our residents and communities. We will be continuing to campaign for local services to be provided with a long-term, sustainable future which gives councils clarity and certainty over their funding.